Several of the world’s largest alternative asset managers have pushed back against claims that the collapse of US auto parts supplier First Brands exposes cracks in the direct lending market, highlighting that the company’s main source of funding was bank-originated, broadly syndicated loans.
At a House of Lords meeting today (29 October), representatives from Blackstone, Ares and Apollo were questioned over the recent high-profile collapses of First Brands and US car dealership Tricolor. The sector has faced mounting scrutiny amid suggestions that the incidents point to wider systemic risks in private credit.
However, all three managers argued the spotlight should fall on the banks, stressing that none of their firms held exposure to either company at the time of collapse.
Read more: ‘Cockroach’ fears overblown after Tricolor and First Brands fallout
Daniel Leiter, senior managing director and global head of liquid credit strategies at Blackstone Credit and Insurance, told peers that the majority of First Brands’ $2bn (£1.5bn) balance sheet was tied to a bank-originated, broadly syndicated loans.
“To be clear, the broadly syndicated loan market is used by companies that don’t turn to what’s been growing in private credit, direct lending,” Leiter said. “The alternative would have been to go to private credit, but that did not happen. There has been a lot of misinformation on this credit issue , this was not a private credit origination.”
Shares in several US banks have fallen amid reports of exposure to the companies. The three investment firms were cautious to discuss the matter in depth while the US Department of Justice conducts an inquiry into First Brands.
Read more: Fitch: First Brands’ collapse has ‘limited implications’ for direct lending
Tristram Leach, partner and co-head of European credit at Apollo Global Management, also emphasised that First Brands was “predominantly financed in public credit markets” and noted that allegations of fraud have surfaced in connection with its downfall.
“There will always be bad actors in any credit environment,” he said. “The key is to fall back on rigorous credit underwriting.”
Blair Jacobson, partner and co-president at Ares Management, added at the meeting in the House of Lords that neither First Brands nor Tricolor reflected systemic issues within private credit. He said Ares carefully assesses ownership structures before lending to businesses.
He noted that First Brands, an automotive supplier, operates in a cyclical, tariff-sensitive sector, while Tricolor sells cars directly to consumers.
“Neither of those companies [were] owned by private equity, which represents around 80–90 per cent of the counterparties we lend to,” Jacobson said. “If you looked at First Brands’ $2bn balance sheet, perhaps only two per cent sat in private credit hands.”
Read more: Jamie Dimon’s private credit comments not “a doomsday call”
